GATT-Think with Asymmetric Countries

Paolo Epifani and Juliette Vitaloni
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Juliette Vitaloni: CESPRI-Bocconi University

No 175, Development Working Papers from Centro Studi Luca d'Agliano, University of Milano

Abstract: We argue that, in the presence of asymmetric countries, a trade agreement that conforms to GATT’s reciprocity rule allows the (stronger) less trade dependent country to improve its welfare relative to both the free trade and the trade war. Conversely, the (weaker) more trade dependent country cannot reach the free trade welfare level under reciprocity, although its welfare improves relative to the trade war. Reciprocity is so unfavorable to the weaker country that it may be worse off under reciprocity than under the Nash bargaining solution, a ‘power-based’ approach to trade negotiations that reflects power asymmetries among trading partners. Our results question Bagwell and Staiger (1999, 2000)’s view of reciprocity as a rule that “serves to mitigate the influence of power asymmetries on negotiated outcomes”.

Keywords: Reciprocity; Trade negotiations; Trade dependence; Nash bargaining solution (search for similar items in EconPapers)
JEL-codes: F02 F13 F15 (search for similar items in EconPapers)
Date: 2003-09-01
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Related works:
Journal Article: “GATT‐think” with Asymmetric Countries* (2006)
Working Paper: ‘GATT-Think’ with Asymmetric Countries (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:csl:devewp:175

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